Chip On Their Shoulders

`Use it or lose it' is no formula for effective federalism.

A Senior Editor of Governing, Jonathan has been covering state and local public policy and administration for more than 30 years.

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You'd think that something great like arranging health care coverage for uninsured kids would bring out the best in state and federal government. What nobler cause to rally around than offering protection to working families who can't afford it themselves? And certainly there was a feeling of genuine accomplishment three years ago, when Congress created CHIP--the Children's Health Insurance Program--and offered to pay states 80 percent of the insurance costs for kids in families too poor to buy it, but not poor enough to be on Medicaid. Congress anted up $4.2 billion to do the job.

But instead of inspiring the best in intergovernmental cooperation, creativity and flexibility, CHIP has served to illuminate the worst of intergovernmental behavior. Last September, the news splashed all over local and national media that 40 of the 50 states were being denied CHIP money, more than $2.1 billion in all, because they hadn't complied with the requirements of the program. By then, it had become clear that CHIP was a sad intergovernmental story indeed.

Worst of all, the problems were utterly predictable.

Anytime the feds hand over billions of dollars to states for new programs, performance is going to vary all over the map. Some states will get their acts together quickly and well, some quickly but messily. Some states will just plain flounder--either for legitimate or inexcusable reasons. And a few--quite properly--will proceed with caution before reaching out for the temptingly dangled federal carrot. After all, they will think to themselves, Medicaid was supposed to be the answer to a bunch of family health care coverage woes. Instead, it turned into a fiscal nightmare.

But CHIP made no allowance for that sort of variation in the abilities and the performance of states, or for any discussion of the long-term fiscal consequences. Rather, the feds presented states with that familiar ultimatum: Use it or lose it.

And so it was a harsh spotlight that shone on the CHIP program in September, when the federal Health Care Financing Administration announced all the states that would be forfeiting CHIP money because they hadn't made the requisite investments of their own before the official deadline. It wasn't the feds that took most of the heat for this. It was the states.

Granted, there are states that behaved so badly or ineptly under CHIP that they probably deserved to lose some funding. But use-it-or-lose- it is just the sort of approach that ends up snagging everyone, guilty, innocent and otherwise.

Take the biggest loser in the CHIP fiasco, the state of California: It forfeited a whopping $590 million in unspent CHIP cash. But California is a huge state with massive social problems that don't easily yield to simple answers or quick action. In order to meet its deadline for distribution of the money, it would have had to redesign its own child health apparatus, a $1 billion program in its own right, in the first 20 months of a new governor's administration. Perhaps California officials could have done that, but it's doubtful that the program would have been any model of effectiveness or efficiency once they were finished.

Then there is Arizona, equally vilified this fall in press coverage of CHIP failures. A common assumption is that the deadline wasn't met there because several powerful legislators were determined to thwart the program due to plain old mean-spiritedness. And maybe there were a few who wanted to make mischief. But there was also a good deal of legitimate caution in Arizona, as in a few other places, about the long-term cost to state government.

Given the soaring expense of health insurance, any responsible state legislator can be forgiven for pointing out that even 20 percent of the permanent cost of insuring millions of kids in working-poor families is a significant commitment. Perhaps more important, there is no guarantee that the feds will continue to fund their 80 percent of the program once states have gone out and signed up all those families. Smarting from the huge increases in Medicaid costs and leery of a federal government that's not always a reliable partner in governing, it's understandable that some states might want to proceed slowly.

A few of the 40 states that didn't meet their CHIP commitment insist that they actually went out and signed up all the eligible kids they could find, but still couldn't spend all the money they were supposed to. Surely the feds could have allowed those states to hang on to their federal funding at least until it was clear to everyone's satisfaction that they had indeed extended coverage to all eligible children.

But with CHIP, there is no going slowly; no hanging on to money while states work to ensure maximum coverage. There is no time to try harder. There is only "use it or lose it."

The bottom line in all this is so starkly obvious that it may be unnecessary to point it out. But I will point it out anyway: The losers in this sort of intergovernmental funding dispute aren't California, Arizona or any of the 38 states that had their money taken away from them. The losers are the children.